Italy’s economy stagnated in the third quarter on the back of the political situation and weak export orders. The outlook remains poor. An euro area exit and an all-out debt crisis are not imminent, but vulnerabilities to shocks are growing.

French President Macron struggles with low approval ratings and decreasing economic confidence, despite a strong parliamentary mandate for reform and upward economic potential. The 2019 budget proposal reduces the size of government, modest improvements in public finances and stimulus for private demand.

In the second quarter of 2018, Spain’s economy took it a bit more easy. The short-term outlook remains strong, though. Nevertheless, the current government should act to lower Spain’s vulnerability to future shocks and it is unlikely to do so.

Spain’s economy has started the year on a strong footing with 0.7% quarterly growth. We expect the economy to grow with 2.8% in 2018 compared to just above 2% growth in the Eurozone. The Catalan crisis has had limited economic impact so far.

Italians are very upbeat and don’t seem to worry about the upcoming elections. The short-term economic outlook is quite rosy. We expect the next government won’t endanger the recovery, but at the same time won’t improve the weak long-term outlook either.

We expect growth to remain healthy for the rest of this year before declining slightly next year. Merkel will likely be re-elected for another four-year term after elections in September. She is benefitting from the strong German economy.